Solar Panels

[Doug Wegener]

I have just been assigned an appraisal of a small town property improved by a sixty year old ranch house. Similar properties in the area have recently sold in a range of seventy to one hundred thirty thousand. The appraisal is for use in a divorce.
The wife hasn't lived in the house in several years and the husband recently installed solar panels which reportedly cost twenty thousand.

I haven't found any recent sales of properties in this price range with solar panels and no sales in the town with solar panels.

My problem is how to approach this problem. New Jersey allows an offset against electric bills for solar installations and also has state tax incentives which< I believe, run with the property. I am looking for references to any publications that address this situation.

Paired sales in a competing town perhaps. Go back in time. Interview with brokers.

 

[hastalavista]

You can analyze the NPV of the forecasted utility savings over the typical holding period of a home (assuming the system has a longer life than the holding period).
I think the National Association of Home Builders has that data in their research (I'm sure others do to).

It has been my experience that the NPV is typically less than the range of the adjusted sales.

For example, assume that I have 5-comparables and they adjust to $500k to $535k.
The NPV of the utility savings due to the PV system may be $15k.
The added benefit provides the rationale for me to select a price-point within the range slightly higher than otherwise (or, at the high-end if that is where I was going to go anyway).
I might give most consideration to Comparables #2 and #3, and they may indicate a value of $520k; the NPV analysis would provide me with a credible and reasonable rationale to select a final price-point above $520k.

Some entities provide a PV value calculator. I don't necessarily agree with their presumptions (they typically presume they value the system for its full useful life; I'm not convinced and the evidence in my market doesn't seem to support, that upon resale the new buyer of the home is going to pay the NPV based on useful life. That's why I calculate the value based on utility savings and a supportable holding period).

Good luck!

 

[Terrel L. Shields]

Some entities provide a PV value calculator. I don't necessarily agree with their presumptions (they typically presume they value the system for its full useful life; I'm not convinced and the evidence in my market doesn't seem to support, that upon resale the new buyer of the home is going to pay the NPV based on useful life. That's why I calculate the value based on utility savings and a supportable holding period).

The NPV diminishes with time, hence even when using, say 30 years, the amount isn't a great deal more than the NPV for 15 years or even 10.

 

[Meandering]

NJ isn't California.
Net metering is not a given.

D,

I find it interesting you use NPV of utility savings, when utility savings rates are not written in stone and as other states have found out, can be significantly dropped at a legislative heart beat.

So what risk factor are you applying to the utility savings, might I ask?

.

 

[hastalavista]

NJ isn't California.
Net metering is not a given.

D,

I find it interesting you use NPV of utility savings, when utility savings rates are not written in stone and as other states have found out, can be significantly dropped at a legislative heart beat.

So what risk factor are you applying to the utility savings, might I ask?

.

Safe rate. I'm presumably saving on an expense that I would otherwise have to pay.
Walter's problem is that there are no 'paired sales" to consider. So, I consider a NPV analysis to be better than nothing. As I said, I've yet to be in the situation where the "benefit" (savings") of the PV system would cause me to value the subject at a point higher than what the adjusted range indicates (without a PV adjustment applied in the grid).

The process shows that I've considered the system in my analysis, and that the consideration has some analysis ("credibility") to support it and how I interpret and finally apply the results of that analysis (my "judgment" which, I would argue, reflects a reasonable approach).

Analysis = Credibility
Appraiser Judgment = Reasonableness​

That's my mantra!

Terrel-

The NPV diminishes with time, hence even when using, say 30 years, the amount isn't a great deal more than the NPV for 15 years or even 10.

What's the difference between a net savings per year of $1,800 ($150/month) of 10-years vs. 30-years?
I think it is more significant in scale than one may think. Obviously, in the grand scheme of things (the total value of the property), it might be chump change!

 

[Meandering]

Odd that you would use the safe rate of liquidity when there is almost no regulatory risk to that, and solar metering rates have a giant regulatory risk, as evidenced in Nevada, and in the original energy bill that only called for possible net metering until the utility reaches 30% renewables, Federally, while your state law, which could be recinded at anytime is 50%.

Here is how NJ works.

How do SRECs work?
http://www.njcleanenergy.com/renewable-energy/project-activity-reports/srec-pricing/srec-pricing

Each time a solar installation generates 1,000 kilowatt-hours (kWh) of electricity, an SREC is earned. Solar project owners report the energy production to the SREC Tracking System. This reporting allows SREC’s to be placed in the customer's electronic account. SRECs can then be sold on the SREC Tracking System, providing revenue for the first 15 years of the project's life.

Electricity suppliers, the primary purchasers of SRECs, are required to pay a Solar Alternative Compliance Payment (SACP) if they do not meet the requirements of New Jersey’s Solar RPS. One way they can meet the RPS requirements is by purchasing SRECs. As SRECs are traded in a competitive market, the price may vary significantly. The actual price of an SREC during a trading period can and will fluctuate depending on supply and demand. See recent SREC trading prices

From the chart at the link $70 a megawatt seems typical over the year
1 Megawatt hour = 1000 Kilowatt Hours (Kwh)

Because of physics, there are losses in converting the energy from the sun into DC power, and turning the DC power into AC power. This ratio of AC to DC is called the ‘derate factor’, and is typically about 0.8. This means you convert about 80% of the DC power into AC power.

To figure out how many kilowatt-hours (kWh) your solar panel system puts out per year, you need to multiply the size of your system in kW DC times the .8 derate factor times the number of hours of sun. So if you have a 7.5 kW DC system working an average of 5 hours per day, 365 days a year, it’ll result in 10,950 kWh in a year.
http://understandsolar.com/calculating-kilowatt-hours-solar-panels-produce/

Divide by 1,000 that's how many SRECs (mWH) that can be sold back into the system for between $50-$100 each SREC.

A tad bit different than California eh?

But again,
How does anyone figure that net metering has the same risks as the safe rate????

.

 

[Meandering]

Oh and the other thing about NJ and PA is that they/we can buy their/our electricity from multiple different companies, not just the local utility.

And darn if those different companies don't all have different rates. And here is the kicker for those with bad memories, you can change your electric company every month.

Yup.

It's different back east.

.

 

[Noreen]

Oh and the other thing about NJ and PA is that they/we can buy their/our electricity from multiple different companies, not just the local utility.

And darn if those different companies don't all have different rates. And here is the kicker for those with bad memories, you can change your electric company every month.

Yup.

It's different back east.

.

This was in the Green Building course I took, here the impact of the snowing/ cloudy days has to be considered and maintenance of the solar panels ( they have to be cleaned every year like you clean your windows for them to have maximum/significant efficiency)... and the SF of number of panels roof capacity of the production. Here, in this climate/weather pattern, I think I would get as close to a matched pair as possible, no matter how old the sale was to quantify the market reaction.

 

[Meandering]

Ah, but,

The matched pair would also need the same utility, to make the "savings" comparable for the sale.

Because all these electric "providers" have different rates that may be higher or lower than the retail rate from the electric generation utility.

It's so much fun figuring out who has the best rates, for electricity they don't generate.

.

 

[Cigar]

I'm curious about something Dennis, here in the Bay Area my PG&E bills averaged $68 a month for some years, a couple of years ago an engineer neighbor installed solar panels, I told him I was interested and to please tell me what his "true-up" bill was when he got it. After a year he told me that his basic monthly bill was about $45 a month and his "true-up" bill was right at $600 for the year, that means he paid a total of $1,140 for the year. Meanwhile my bill started creeping up although usage stayed the same with some incomprehensible things like one month a bill of $35 for a "climate credit" and the next month a $100 bill, eventually another climate credit that I can't figure out, last month I got the highest bill I ever received (without usage going up) of $140.

Had there been no solar charges I would have paid $816 for the year compared to his $1,140 not counting his solar lease payments, if rates stay where they are I will pay $1,680 for this year compared to his $1,140. Let's say everything is equal between our homes (which it never is but assume so) and you are called to appraise both homes, how do you handle the differences?